NEW ZEALAND: Core Inflation Trending Lower

Oil prices have trended gradually higher during APAC trading today as the geopolitical risk premium grows. Brent is up 0.3% to $71.26 and WTI 0.3% higher at $67.75, both below initial resistance levels. Both benchmarks are slightly off their intraday peaks. The USD is up 0.2%.

• Crude has found support from rising geopolitical tensions with the US targeting Houthi rebels in Yemen and saying it will blame Iran for any attacks on Red Sea shipping. In addition, Israel is striking Gaza again as Hamas won’t release the remaining hostages. Also presidents Putin and Trump will speak later on Tuesday about Ukraine.
• Supply trends remain a focus given OPEC is likely to stick to its output normalisation plans in April and the US intends to increase production. The IEA still expects excess supply in 2025. Today US industry-based oil inventory data is released, which has recently shown a crude stock build but a product drawdown.
• The effectiveness of stricter enforcement of sanctions on Iran is unclear as it has found ways around restrictions on its shadow fleet. But tighter sanctions could reduce global supply by 1mbd, which is substantial. It was the 9th largest producer in 2022.
• Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.

At the Tokyo lunch break, JGB futures are weaker, -11 compared to settlement levels, after giving up early strength.

• Today, the local calendar will see the Tertiary Industry Index and Tokyo Condominiums for Sale data alongside 1-year note supply.
• Nevertheless, the focus remains on tomorrow’s BoJ Policy Decision. The BoJ is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase. Strong Shunto wage negotiations saw a 5.5% rise, but broader wage pass-through is needed for sustained inflation above 2%.
• Analysts expect a gradual rate hike to 0.75% by July or September and 1.0% by early 2026, depending on SME wage trends.  Market pricing reflects uncertainty, with only half of a 25bps hike factored in for June and a full hike not priced until October. (see MNI BoJ Preview here)
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session. The focus is on Wednesday’s FOMC decision.
• Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is 0.7bps higher at 1.5% versus the cycle high of 1.58%.
• Swap rates are flat to 2bps higher out to the 30-year and -2bps beyond. Swap spreads are wider out to the 30-year.

The USD BBDXY index sits a touch higher, last above 1264.2. The dollar is up against all of the majors, except for NZD. Yen is the weakest performer down close to 0.30%. 

• More broadly though, the USD is largely holding recent losses. We are also some distance from upside resistance, with the 20-day EMA around 1273.
• USD/JPY has pushed through 20-day EMA resistance above 149.40, the pair last in the 149.65/70 range. US cross asset moves should have favored the yen today, with US yields down a touch, while US equity futures are also off modestly (around -0.20-0.30% for Eminis and Nasdaq futures).
• Gold prices are also higher (through $3010) in a potential sign of risk aversion, amid renewed Israel strikes on Hamas in Gaza, but there is also a strong structural element (e.g. central bank demand) to the gold shift.
• Regional Asia Pac equities are mostly higher, with Hong Kong markets up 2%. This is likely providing some offset from a yen standpoint.
• We have the BOJ outcome tomorrow, where no change is expected, while domestic political uncertainty (amid Ishiba's lower approval rating) may also be a headwind.
• For USD/JPY we are still some distance from key resistance though (151.30).
• AUD/USD has ticked down a touch to sub 0.6380. NZD/USD is holding up for now close to unchanged at 0.5820/25.
• EUR/USD is back close to 1.0905/10.